What Is a Mix of Credit?

There are many different factors that play a role in your credit score, and one of those is having a diverse mix of credit on your report.

While this factor makes up only about 10 percent of your credit score, according to Remitly, that’s still a fairly important chunk.

So what does it mean to be managing different types of credit and what are the types you should try to have included on your credit report?

The following are some tips and things to know about having a good mix of credit to help improve your score.

How Important Is It Really?

If having a diverse mix of types of credit makes up about 10 percent of your score that means it’s not going to make or break you, but it can help you move up a level or so from let’s say having a good score to having an excellent score.

At the same time, you do want to balance having a mix of credit with making sure you’re not overextending yourself.

For example, don’t go and get a new loan with a monthly payment just to have that particular type of credit on your report.

What Exactly Is Looked At?

So, when your FICO score is calculated, it’s looking at both the number as well as the variety of accounts you have on your report. It’s less important to have multiple types of each account, and more important to have overall experience with different types of accounts.

The different possible accounts that are usually reported to credit bureaus include:

Installment loans

Mortgage loans

Credit cards from banks

Credit cards from retail stores and gas stations

Unpaid Loans

Sometimes a FICO score might also include non-traditional forms of payment history such as rent and utilities.

Installment vs. Revolving Credit

Installment credit refers to the types of loans you pay back in the same amount every month. You get approved for a loan, the amount is determined at that time, and your payments are broken down over time based on that approved amount. A car loan or a home mortgage is installment credit.

Revolving credit isn’t a set amount, although you do have a maximum credit limit as to what you can spend. However, of that limit the amount you spend is left up to you. Revolving loans include credit cards and home equity lines of credit. You pay off revolving credit as you use it.

This is all very relevant to your credit score not only regarding on-time payments but also something called credit utilization. Credit utilization ratio refers to the percentage of what you owe on your revolving credit as opposed to what you have available.

If you’re using more than 30 percent of the credit that you have available to you, then it’s likely going to damage your credit score, but this doesn’t apply to installment lines.

Finally, that’s why sometimes you’ll hear people say that revolving credit is more damaging to your credit score than installment loans, although it is ultimately up to you in terms of how much of that revolving credit you’re using.